Q: Is Base Closure and Realignment restored leave taxable when distributed? My CPO is telling me yes but cannot cite any regulation. I recall from an earier question you answered that you said that BRAC leave had already been taxed when earned and therefore no withholding would be imposed on the payout. Can someone give me the chapter and verse? Our installation closes in 2011, and many of us have built up large BRAC balances.
A: I think your memory is playing tricks on you. Annual leave isn’t taxable when it’s earned, nor is it taxable when restored. Annual leave is only taxable if it is paid out in a lump sum because, according to the IRS, it is then considered to be regular income.